As South Africa gears up for the implementation of the new two-pot retirement system on September 1, 2024, financial services experts are cautioning retirement fund members to carefully consider the potential implications of accessing their savings early.
The new system, which aims to provide individuals with access to a portion of their retirement savings for emergencies, will divide retirement funds into two pots: a savings pot and a retirement pot. The savings pot will hold one-third of all retirement savings and can be accessed once a year, while the retirement pot will hold the remaining two-thirds and remain inaccessible until retirement.
However, experts warn that accessing savings early may have unintended consequences. “While the new system may seem like an opportunity to tap into retirement savings, individuals must carefully consider the potential impact on their long-term financial security,” said one financial services expert.
To access the savings pot, members must meet certain criteria: withdrawals can only be made once a tax year (between 1 March and end February), with a minimum withdrawal amount of R2,000. Additionally, withdrawals will be taxed in line with the member’s marginal tax rate, and SARS will prescribe the amount of tax to be paid via a tax directive issued to the administrator.
Furthermore, SARS is legally allowed to collect any outstanding taxes or penalties from the savings withdrawal benefit, which may further reduce the amount available for withdrawal.
The seeding of the savings pot will be a one-off, with 10% of the total funds (maximum R30,000) transferred from the vested pot. Future funding will come from one-third of all future contributions.
Experts urge retirement fund members to think carefully before accessing their savings early, considering the potential long-term implications for their financial security. “It’s essential to weigh the immediate benefits against the potential risks and consider alternative options for addressing financial emergencies,” said another expert.
As the implementation date approaches, financial services experts recommend that retirement fund members seek professional advice to ensure they make informed decisions about their retirement savings.
